Glimmers of hope in mining services sector

Thoughts Everyone - Article from The Australian

• The Australian12:12 PM October 24, 2016

There’s a further sniff of recovery in the mining services sector, or maybe it’s more a case of torrid conditions simply unable to get any worse.
Take the small but globalised driller Mitchell Services (MSV, 4c), which reports a September quarter uptick in work from its mainly blue chip mining clients.
According to CEO Andrew Elf, the company’s operating rig count increased to 21 during the September quarter, compared with 18 a year ago.
“More significantly, the average number of monthly operating shifts has increased by 45 per cent during the quarter when compared to September 2015.’’
Management adds: “The growth was driven in part by an increased number of tier-one contracts, but also by an increase in the scope of work from existing clients following recent increases in key commodity prices.
“The company’s revenue mix by commodity remains well balanced, whilst revenue from our underground division continues to grow.’’
In the 2015-16 year, Mitchell narrowed a $17m pre-tax loss to a $6m deficit.
In August, Ausdrill (ASL, $1.41) reported a strong earnings turnaround: a $20.2m profit compared with a $160m loss on revenue of $744m (3 per cent higher).
While Ausdrill is heavily exposed to the local gold sector, Ausdrill CEO Ron Sayers expects medium term growth in Australia and Africa, “where Ausdrill has a long-term presence and local know-how.’’
The world biggest (and probably most troubled) driller Boart Longyear (BLY, 14c) narrowed its half year loss from $152m to $73m, despite revenue tumbling 20 per cent to $310m.
“Gold represents over half our revenues and this improved price environment has resulted in increased tenders for drilling,’’ CEO Jeff Olsen said at August half year results time.
The company adds: “Decreased demand and oversupply in the company’s core markets continue to challenge pricing, though the impact on results was lower than in the previous period.’’
While investors were unmoved by Mitchell’s glimmer of hope today, the company’s shares have doubled since mid-July. They’re still not within cooee of the August 2011 listing price of 20c, which the company never attained.
Ausdrill shares have more than tripled since May, while Boart shares have recovered 75 per cent since late June.
We await another swallow or two before we declare the end of the sector’s winter of discontent.
* The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author does not own any of the shares mentioned.